U.S. Markets closed

Edited Transcript of IGL.AX earnings conference call or presentation 26-Feb-20 12:01am GMT

Half Year 2020 IVE Group Ltd Earnings Call

HOMEBUSH WEST Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of IVE Group Ltd earnings conference call or presentation Wednesday, February 26, 2020 at 12:01:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Darren Dunkley

IVE Group Limited - CFO

* Geoff Bruce Selig

IVE Group Limited - Executive Chairman

* Matthew Aitken

IVE Group Limited - CEO

================================================================================

Conference Call Participants

================================================================================

* Hamish Murray

Bell Potter Securities Limited, Research Division - Analyst

* James Middleweek;Value Invest;Analyst

* Jonathon Higgins

Shaw and Partners Limited, Research Division - Analyst

* Mark Christensen;Pengana Capital;Analyst

* Shane Bannan

Bligh Capital Pty Ltd, Research Division - Head of Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you for standing by, and welcome to the 6 Months to 31 December Results' Briefing. (Operator Instructions) I would now like to hand the conference over to Mr. Geoff Selig, Executive Chairman. Please go ahead.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [2]

--------------------------------------------------------------------------------

Thank you, and good morning, everybody. I'm joined with me this morning in the room by Matt Aitken, our CEO; and Darren Dunkley, our CFO, and we will reference this morning the investor presentation dated the 26th of February that was uploaded to the ASX this morning.

Well, from our perspective, we performed well in what was a subdued first half for the business. There's been a lot happening on a range of fronts. We moved to the one brand, as you would know, and as outlined in the presentation. It's been very well received across the board and certainly a far more simplistic message to both our customers, staff and the investor community as well.

There's been a range of initiatives across the board underway across the group through the period. We've executed or committed on nearly all of our capital investment plans for the years, and there's been an enormous amount of activity across the customer base as there always is.

The year ended with the finalization of the acquisition of Salmat Marketing Solutions and Reach Media, and we'll touch on that a little bit later further to the completion of those acquisitions on the 1st of January.

If we just move to the financial performance dashboard on Page 6, the first point to mention would be that our gross profit margin and our EBITDA margin is consistent with the FY '19 full year, which is comforting. You'll see that revenue is up by 4.1%, and ultimately, that is the driver -- the primary driver of our reduction in EBITDA to $40.1 million for the half year. And flowing on from that, within our dividend -- our stated dividend policy range, we are declaring an $0.086 dividend for the first half, which is exactly the same dividend as the first half in FY '19.

So at this point, I will hand over to our CEO, Matt, to walk through Page 7, the profit and loss, and then Darren will take over from there. Thanks, Matt.

--------------------------------------------------------------------------------

Matthew Aitken, IVE Group Limited - CEO [3]

--------------------------------------------------------------------------------

Thanks, Geoff. So good morning, everyone. Just talking to the key aspects of the profit and loss for the first half of FY '20.

As Geoff touched on, revenue has decreased 4.1% over that period. It's primarily been impacted by the macroeconomic conditions that have been far softer than we would have otherwise expected or wanted, particularly in the retail sector and even more so when we consider the impact that, that has had on our discretionary spend retail clients. Notwithstanding that the business has continued to have strong momentum with new customers and new business at all levels and all sizes, namely some being Specsavers, Stratco, Priceline and a significant expansion of our relationship with Spotlight Retail Group. You may also remember that at the full year results, we talked about our move into the book market, the book printing industry, and we commenced that move at the start of January with a foundation client being Pan Macmillan, one of the largest publishers in Australia signing on as a foundation client for our strategic move into the book printing market. There are also a number of customers that we have renewed or extended relationships with, customers like Commonwealth Bank, AMP, American Express, ANZ, Bupa and L'Oréal. Some of these customers have been long-term customers of our group over the last 16 to 17 years and are, again, committing to long-term contracts with the group moving forward, which I think ultimately validates the offer we have in the market, our value proposition, the strength of the relationships we have with our clients and even more so, the value our people bring to our clients' businesses every day of the week.

Gross profit margin at 47.8% is consistent with where we finished the full year, which was 47.9%. We've continued to see the impact in H1 of the high paper price increases that we experienced through FY '19. And whilst we can see a less volatile market and more stable paper pricing moving forward, there's no doubt that, that has continued to impact our trading results in the first half of the financial year.

EBITDA of $40.1 million, down from $43.4 million, is really impacted by the revenue decline. We have worked very hard to ensure that the reduced revenue is offset by cost efficiencies or efficiencies delivered through the cost base through stabilizing gross profit and other mechanisms within the business and a continued focus by the management team on how we run the business. The EBITDA margin is consistent with where we finished the full year at 11.1%, an impact of $17.6 million.

At this point, I'll hand over to Darren and ask him to talk through the net debt and the capital expenditure and balance sheet component of the deck.

--------------------------------------------------------------------------------

Darren Dunkley, IVE Group Limited - CFO [4]

--------------------------------------------------------------------------------

Thank you, Matt, and good morning, everyone. Just before I talk about the net debt and cash flow and balance sheet, I'd just like to point out Appendix C on Page 15 of the presentation, which sets out our adjustments excluded from the pro forma profit and loss that Matt has just taken you through. These adjustments primarily relate to acquisition costs of $2.9 million relating to the Salmat acquisition. Acquisition costs are expected to be minimal in H2, restructure costs of $2.8 million relating to the relocation and consolidation of our Victorian logistics operations and to coincide with the move to one brand, the bringing together of our Kalido, Pareto and Blue Star DIRECT businesses into our data-driven communications division.

So if you now -- if you just turn to Page 8 of the presentation, I'll take you through our net debt, capital expenditure and balance sheet. Net debt of $150.1 million is up on June '19 of $143.7 million. This reflects our increase in working capital with December being traditionally higher than June year-end. And we expect, as per previous years, working capital is to reduce in H2 of FY '20.

As foreshadowed, H1 has seen a reduction in inventory from that of June '19 of $5 million. This is a pleasing result given the seasonal impacts. And as per previous updates, FY '19 saw us carrying higher levels of inventory in our web division to ensure we locked down supply in a period of volatility. This was the right thing to do by the customers and the business at that point in time. We can now see inventory levels reducing to normalized levels in -- for H2, and this is a clear focus for the business.

Capital expenditure. The first half capital expenditure is $6.3 million, which excludes our MIS upgrades, with the full year forecast expected to be circa $10 million, which is in line with our previous updates. F '20 CapEx program is now largely spent, committed, and we should see further benefits delivered in H2 for this program. MIS upgrades are progressing well and in line with planned rollouts.

Just on balance sheet. Appendix B of the presentation is the IFRS balance sheet. This is at the back of our presentation. It's providing a reconciliation of post-AASB 16 and pre-AASB 16 impacts. The main driver of used assets, liabilities impacts relate to property leases.

If you now turn to Page 9 of the presentation, pro forma cash conversion of 67.4%. This has been driven by our increasing working capital from June. Again, it's a seasonal impact, and we expect this decrease -- to decrease in H2 of FY '20, improving our cash conversion. Our reduced inventory levels will also help this cash conversion number.

Earnings per share of $0.119 per share based on pro forma NPAT and an interim dividend of $0.086 per share fully franked and, as Geoff mentioned, a 72.4% payout ratio to pro forma NPAT.

I will now hand you back over to Matt for Salmat acquisition and business update.

--------------------------------------------------------------------------------

Matthew Aitken, IVE Group Limited - CEO [5]

--------------------------------------------------------------------------------

Thanks, Darren. So just referring to Page 10. The acquisition of Salmat Marketing Solutions and Reach Media in New Zealand was completed as planned on the 1st of January 2020 for a purchase consideration of $25.4 million, as we've previously spoken about at the full year, and the acquisitions were fully debt funded and are expected to be accretive to earnings in H2 FY '20.

The acquisition will be bolstered by and we remain committed to the capital investment program that we foreshadowed at the AGM, which will be a further $25 million to $30 million of capital spend in the period of F '21 to automate the marketing solutions catalog collation process in Australia prior to arrival with the walker, the 12,000-strong walker network in the letterbox.

The transaction rationale on Page 10 really is consistent with the key points that we communicated at the AGM. And as such, I would ask you to turn towards Page 11. I'm going to provide you a further update since completion on the Salmat Marketing Solutions business.

The acquisition has been extremely well received by all Salmat and Reach customers. Many of those customers are common customers or already customers of IVE, and they have been [repped] with the fact that we have invested in the acquisition of the Salmat business. The staff have responded extremely well, both across Australia and New Zealand. We've completed road shows to all sites throughout Australia and met all staff, and it has been universally very well accepted by the staff. And they are excited and engaged with the plans that we have for the business. It's been broadly recognized as a good fit for IVE's existing and powerful retail offer, and we continue to work hard on bringing the business plan for the next 12 months to completion. The foreshadowed capital investment program will strengthen the national walker network and deliver a superior product as far as we're concerned that will be welcomed by the sector as an important step change in enhancing the catalog channel and the sustainability of the delivery network in Australia. The capital investment business plan will be complete by late February, early March, ready for approval. And as I've just mentioned a moment ago, the business plan is close to being complete as well. So it's early days, but at this stage, it's been very well received on all fronts by all key stakeholders.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [6]

--------------------------------------------------------------------------------

Thanks, Matt.

--------------------------------------------------------------------------------

Matthew Aitken, IVE Group Limited - CEO [7]

--------------------------------------------------------------------------------

I'll ask Geoff to take us through the outlook statement.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [8]

--------------------------------------------------------------------------------

So just turning to the Page 12, outlook, the first section. Look, in the context of the H1 result, some continuing softness in the macro conditions impacting our revenue, together with the uncertainty around the coronavirus on our supply chain and broader customer base. Our guidance for the full year, our EBITDA guidance for the full year, pro forma EBITDA guidance is $75 million to $79 million. And I would like to point out that we expect the gross profit margin, once again, to remain stable and for stability around the input cost of paper and [MG], albeit they remain elevated, as we pointed out previously.

If we take online to a more strategic focus, we have invested heavily and covered a lot of ground over the last few years. So we continue to focus on unlocking the value from the strategic investment program, continue to reaffirm and reinforce the one brand and the diversity and powerful offer that we take to market and the leading positions that we hold in the sectors we operate in. The successful integration of the recent acquisitions that Matt just touched on of Salmat and Reach is very important for the business. So we're focused on those integration plans and the finalization of the CapEx program, which will be a real game changer in terms of the sector and the channel. And in the more medium term, if we focus on cash generation, reaffirm that the L solid and stable performance of the business will generate strong free cash flows over the years ahead, that, combined with reduced capital expenditure, no deferred consideration remaining payable on prior acquisitions, puts us in a good position to support the continuation of our dividend policy that we have had in place since we listed back in 2015.

In fact, I'll just mention in conclusion the investor site visits and sessions that we have scheduled for March. We have 17th of March in Sydney as I visited our web offset operation in Huntingwood and on the 19th of March at our web offset operation in Sunshine in Victoria. So if you don't have details on that or you'd like to make contact, please contact Richard Nelson, our Investor Relations Manager. His details are on the deck.

So at that point, we'll leave it at that. Thank you, again, for your time, and happy to take any questions that anyone might have.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Jon Higgins from Shaw and Partners.

--------------------------------------------------------------------------------

Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [2]

--------------------------------------------------------------------------------

Just firstly, in regards to the restructuring costs in the result, we've now had about $5.5 million in sort of trailing 12 months from second half of '19 and the first half of '20. What can we expect in the second half of '20? Obviously, you're integrating the Salmat businesses, and you previously had said that you'd expected minimal restructuring costs. So we've seen a pickup there in the last couple of halves. What can we expect in the second half of '20?

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [3]

--------------------------------------------------------------------------------

Yes. Look, we -- it's Geoff here, Jon. We've certainly, over the last few years on the back of a range of initiatives, had some restructure costs, as you've just pointed out. We would expect the restructure costs for the second half to be relatively minimal.

--------------------------------------------------------------------------------

Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [4]

--------------------------------------------------------------------------------

Okay. And just noting in terms of the guidance in your AGM statement, you talked towards a combined, sustainable annual EBITDA of marketing solutions plus Reach Media of about $6.5 million. Just to be clear, in the context of the guidance that you've given today, is that a $6.5 million into the future FY '21 post initiatives-type number? And -- or is that a number that's run rating in the second half? And if so, the $37 million of guidance in the second half of '20 to do the midpoint is really the core IGL business outside of the Salmat and Reach that you're guiding towards 34 in the context of that?

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [5]

--------------------------------------------------------------------------------

Yes. I hear what you say. We're not in a position to carve out the component of the guidance that relates to the contribution from Salmat. Suffice to say that the guidance we put out does have a contribution from the businesses that we've acquired. But we should point out that the relative weighting of the Salmat earnings is more heavily weighted than the broader output to the first half of the year than the second half of the year, which I think we pointed out at the AGM in November as well.

--------------------------------------------------------------------------------

Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [6]

--------------------------------------------------------------------------------

Yes. So just -- so that's the whole idea behind the sustainable annual EBITDA is more like a post investment from IGL group type number?

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [7]

--------------------------------------------------------------------------------

When you say a post investment?

--------------------------------------------------------------------------------

Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [8]

--------------------------------------------------------------------------------

Well, you're talking about investing $25 million in initiatives in that business. Like when you say combined sustainable annual EBITDA, that's obviously not with reference to a pro forma if you own the business for FY '20. It's in regards to FY '21 onwards.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [9]

--------------------------------------------------------------------------------

Yes. No, the view at the AGM is that that's the underlying -- if you look at the Salmat business that we acquired, it isn't -- it doesn't have a lot of the components that Salmat Marketing Solutions business had 6 or 9 months ago, and they lost a couple of large customers in the last 6 months while we were in discussions with them. They then divested or shut down of the -- all their digital assets. So the $6.5 million that we came up was our short- to medium-term view around the underlying sustainable earnings of the business. The investment in the capital expenditure sits outside of that because that will unlock a return on the capital expenditure, but will also trigger some synergies at that point, which we also communicated at the AGM. Does that answer your question?

--------------------------------------------------------------------------------

Jonathon Higgins, Shaw and Partners Limited, Research Division - Analyst [10]

--------------------------------------------------------------------------------

Yes. That's perfect. No, I completely understand, Geoff. And just the obvious one from me, then I'll jump off and let somebody else have a go. Just in regards to the whole coronavirus thing in your supply chain up in China, are you able to just give us a bit of granular detail around how that would affect your supply chain and how you're positioned for that?

--------------------------------------------------------------------------------

Matthew Aitken, IVE Group Limited - CEO [11]

--------------------------------------------------------------------------------

Yes. Jon, it's Matt here. So I must talk to the impact of the coronavirus. We have a team of people based in China, so in the Guangzhou and Guangdong province and even some staff that live in the Wuhan area. So our business up there, our team up there have been impacted like many other people employed and living in China in terms of not being able to attend their place of work, notwithstanding our staff have been working remotely. What it means is we've not had access to a number of the factories that we would use as part of our core supply chain in that market to support our customers' requirements in the Australian market. We do have the benefit of being able to access the local supply chain in non-China-based countries like Australia and New Zealand. We also have some supply chain requirements that we can tap into in Taiwan and Vietnam. But what we have seen is we've seen an impact of projects that were in play already up in China in terms of delaying the arrival of those projects back into Australia. We have seen it impact some customers' decisions around going ahead with projects. So permanently delaying projects until such time as maybe China comes back online. We do source some of our raw materials from China, and we do see some of our freight from Europe coming via the Chinese ports, in which case, that is also impacting our supply chain at the moment. So none of it is completely insurmountable from our perspective, but we have certainly seen customers delaying or pulling back on projects while this is taking place. And we're having to, obviously, work hard to ensure that we've got continuity across the key parts of our business, which includes some of our manufacturing sites here in Australia. So we are in a strong position, to some extent, notwithstanding we're also being impacted.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Your next question comes from Hamish Murray from Bell Potter Securities.

--------------------------------------------------------------------------------

Hamish Murray, Bell Potter Securities Limited, Research Division - Analyst [13]

--------------------------------------------------------------------------------

Just a couple from me today. I might go on a bit. But just a quick one, just in terms of the revenue declines. Would you say that they were 100% market-driven? Or was there sort of a more structural decline in volumes that you saw? Or was there any business losses in there? Or was it all just market-driven? And if so, was that skewed to sort of the final months of the half like Christmas area? Or did you see it just sort of run rate across the half?

--------------------------------------------------------------------------------

Matthew Aitken, IVE Group Limited - CEO [14]

--------------------------------------------------------------------------------

It's Matt here. So first of all, we saw it pretty consistently right through the half. It didn't sort of gain any momentum getting closer to Christmas. It's pretty evident as we started to see it in Q1, and then obviously, it carried on into Q2. As mentioned earlier, really was -- is also very evident in our discretionary retailing customers. So if you're -- some of our central retailing customers have just -- they've been fine activities, being very strong, very consistent. But some of our customers, whether it's customers who might be selling furniture or electronics or white goods, they really started to change some of their marketing program and marketing approach as they saw softening in retail sales from their perspective. So I don't think it's necessarily a broader structural issue at this stage. It's more so the macroeconomic conditions that they're also facing.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [15]

--------------------------------------------------------------------------------

And no customer losses.

--------------------------------------------------------------------------------

Matthew Aitken, IVE Group Limited - CEO [16]

--------------------------------------------------------------------------------

Yes. No customer losses, Hamish.

--------------------------------------------------------------------------------

Hamish Murray, Bell Potter Securities Limited, Research Division - Analyst [17]

--------------------------------------------------------------------------------

Yes. And so going on to that, if we look towards the guidance range, particularly at the midpoint, I guess, at the high point, you wouldn't say this, but once you strip out any sort of Salmat assumptions, it looks like run rating, we're suggesting with corona, it's getting a bit worse. Is that sort of the downside risk you guys are seeing?

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [18]

--------------------------------------------------------------------------------

Well, we've tried to context the guidance with the comments that we've made. A part of it feeds off the half year result. There's a contribution from Salmat. There's a softness just in the macroeconomic conditions. You could say that there was a softness prior to the virus. So we're still pointing to the same 2 impacts there, just the general macro conditions, particularly in the retail sector, and then this added dimension of the virus that, for all businesses, is a little uncertain in terms of the impacts. But as Matt just pointed out, we have clearly some exposure. But compared to many other businesses, given our primary -- the vast, vast majority of business is domestic production and servicing, we're in good shape. So I think it's a combination of all of those factors, Hamish.

--------------------------------------------------------------------------------

Hamish Murray, Bell Potter Securities Limited, Research Division - Analyst [19]

--------------------------------------------------------------------------------

Yes. And just circling back to sort of the Christmas element of things. Have you guys noticed any changes with sort of this rise of Black Friday sales and move away or shift towards Black Friday sales from Christmas in some parts?

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [20]

--------------------------------------------------------------------------------

There was definitely a very strong focus on Black Friday from our key retail clients, Hamish. And I believe that they were very happy with the results that they saw from Black Friday. So could change a little bit of the timing of some activity in the weeks leading up to Black Friday, with a lot of a stronger focus on the Black Friday weekend and then some of our retail clients going on post that to do some sort of mini Black Fridays thereafter between the official Black Friday and Christmas. So our large retail clients continue to remain very strong in what they're doing.

--------------------------------------------------------------------------------

Hamish Murray, Bell Potter Securities Limited, Research Division - Analyst [21]

--------------------------------------------------------------------------------

And just in regards to the CapEx spend as well. I'm going on a bit, but the $25 million to $30 million that's been called out in FY '21, I knew that was called out at the acquisition, but I had it spread more over an 18-month period. But I'm guessing now we're expecting all of that to be spread across FY '21 in addition to the CapEx in the core as well.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [22]

--------------------------------------------------------------------------------

Yes. Look, I think we came to place the order for the CapEx as soon as we practically can. But clearly, we needed to do work post the actual ownership of the businesses to reaffirm our assumptions in our modeling. And our view would be the sooner we can get it here and installed and operating, the better. So if we stick to the time line we've put in place, that should see the CapEx falling in FY '21. That's the intention at this point. The overriding principle is the sooner, the better.

--------------------------------------------------------------------------------

Hamish Murray, Bell Potter Securities Limited, Research Division - Analyst [23]

--------------------------------------------------------------------------------

And I assume a lot of that could be funded out of leasing?

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [24]

--------------------------------------------------------------------------------

Yes. Well, as we put in the deck, I think it will be funded out of existing cash reserves and existing facility.

--------------------------------------------------------------------------------

Darren Dunkley, IVE Group Limited - CFO [25]

--------------------------------------------------------------------------------

It'd be a combination of both, Hamish.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [26]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Your next question comes from James Middleweek from Value Invest.

--------------------------------------------------------------------------------

James Middleweek;Value Invest;Analyst, [28]

--------------------------------------------------------------------------------

Can you talk a little about the competitive position and whether there have been any changes in the market or changes you think might be coming? I mean I'm thinking (inaudible), for example, seem to be getting or about to get their act together. They've spent money. I don't know what's going on below that level. But if you could just sort of perhaps shed a bit of light on the competitive situation.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [29]

--------------------------------------------------------------------------------

Sure, James. Maybe to answer that question, it's worth just pointing out that we operate in many, many different parts of the sector. So it's not that we have one headline competitor. We have competitors in the various subsectors of the broader MarCom sector that we operate in. And over the last 20 years, there has been quite a lot of rationalization and consolidation across the sector. We've been quite active in playing a lead role in that rationalization and consolidation through that period. So if you look more broadly, structurally, our sector is in quite a different shape to what it was 20 years ago with fewer players in the market. So we hold leading positions in all of the subsectors of the broader sector we operate in, which I pointed out earlier. And we've not seen any material change in the competitive landscape over the last 6 months -- 6 to 12 months. It's been relatively stable. I think we would point more to the other factors that we've spoken to today in relation to revenue and broader macro conditions, less to the competitive landscape and make the point that our gross profit margins held up over the last 6 months, but over the last 4 years, has been relatively stable right through that period and keep coming back to the underlying strengths of our business, which is our offer to the market or our value proposition; our long-term, sticky relationship with customers, our people; the quality of our production assets and operations given the investment that we've made over a long, long period of time; our cash flows; our scale; both our geography -- geographic footprint; and our capacity to buy well. All those factors in the context of the competitive landscape put us in a strong position relative to any one competitor or a combination of competitors that we may be operating against in the market. So hopefully that answers your question, James. We can take if offline.

--------------------------------------------------------------------------------

James Middleweek;Value Invest;Analyst, [30]

--------------------------------------------------------------------------------

Yes. I think it does. I mean do you foresee -- I mean it's difficult to, obviously, to know. But do you foresee further consolidation? Or do you think we've got to a point where, I guess, the balance sort of -- not in power, I guess, balance in power between your customers and perhaps a reduced list of suppliers is sort of just about okay, subject to volume?

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [31]

--------------------------------------------------------------------------------

Yes. Look, I wouldn't think that there'd be any more meaningful consolidation in terms of a large sort of plays. Our acquisition of Salmat was very meaningful and was an ideal and, some would say, obvious fit for our group to buy that business because it rounds out our retail vertical. There still are opportunities for us as a business in relation to bolt-on acquisitions, the smaller-type acquisitions that we've done a number of over the years. But in terms of some of the larger consolidation and rationalization plays few and far between. And if you go back to our investor presentation from August 2017, you'll see some commentary on the most recent rationalization in the large format web offset sector where we went from 4 plays down to 2 plays. That was a very significant rationalization and took a long time to come about.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question is from Shane Bannan from Bligh Capital.

--------------------------------------------------------------------------------

Shane Bannan, Bligh Capital Pty Ltd, Research Division - Head of Research [33]

--------------------------------------------------------------------------------

So I hate to ask this, but Darren, I'm just trying to demystify your cash flow statement in terms of range between what you're showing in the presentation and what you're showing on the -- in the accounts themselves. I suspect it's all tied up with this AASB 16 with respect to reclassification of client's liabilities and these sorts of things. But is there a simple answer as to why we're getting these wild screens in terms of what we're showing in the balance sheet and what you're showing in your presentation?

--------------------------------------------------------------------------------

Darren Dunkley, IVE Group Limited - CFO [34]

--------------------------------------------------------------------------------

The main difference in this -- because you're looking at the detailed accounts, Shane?

--------------------------------------------------------------------------------

Shane Bannan, Bligh Capital Pty Ltd, Research Division - Head of Research [35]

--------------------------------------------------------------------------------

Correct. Yes.

--------------------------------------------------------------------------------

Darren Dunkley, IVE Group Limited - CFO [36]

--------------------------------------------------------------------------------

Yes. So the main difference is really the rental expense. It comes out of -- now moves out of EBITDA, and you can see it as a lease expense down the bottom in financial cash flows of the cash flow statement.

--------------------------------------------------------------------------------

Shane Bannan, Bligh Capital Pty Ltd, Research Division - Head of Research [37]

--------------------------------------------------------------------------------

So that's your -- if I look at your -- if I'm just trying to back engineer here, the amortization of the right of use was about, what, 10.6, what I can work out. You have some liability that you're showing in your presentation, I think, is about 1.9, which suggests that you're going to get to your 1.4 negative impact to your 11.1 interest saving in EBITDA, yes?

--------------------------------------------------------------------------------

Darren Dunkley, IVE Group Limited - CFO [38]

--------------------------------------------------------------------------------

Look, Shane, how about we take this off-line because this is a bit detailed to just go through on the call here. But I mean I've provided -- I mean you can see in the appendix of the balance sheet a reconciliation of the movements between right-of-use assets and liabilities, and also, you can see that pre and post from a P&L perspective. So maybe I'll give you a call after this, and we can go through that in more detail offline, if that's okay with you Shane.

--------------------------------------------------------------------------------

Shane Bannan, Bligh Capital Pty Ltd, Research Division - Head of Research [39]

--------------------------------------------------------------------------------

Yes. No. That probably works better, I think.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [40]

--------------------------------------------------------------------------------

I think the other point is what's difficult with, and it's for every company, but this H1 for FY '20 in relation to the new accounting standard, we don't have a point of comparison because it was not in place in H1 FY '19. So it'll take some time as it rolls through to get comparison points that become relevant. And we'll continue as a business to report on pre and post so that investors and the business have got a line of sight for comparison purposes.

--------------------------------------------------------------------------------

Darren Dunkley, IVE Group Limited - CFO [41]

--------------------------------------------------------------------------------

And look, it's also important to point out, Shane, that, really, AASB 16 impacts don't impact cash flow, ultimately.

--------------------------------------------------------------------------------

Shane Bannan, Bligh Capital Pty Ltd, Research Division - Head of Research [42]

--------------------------------------------------------------------------------

No. I understand. I understand. The -- just -- well, I've got the call in which case the guidance you've given out there for the current year, 75 to 79, presumably that includes Salmat for the 6 months.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [43]

--------------------------------------------------------------------------------

Yes. It does.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Your next question comes from Chris Tan from Pengana Capital.

--------------------------------------------------------------------------------

Mark Christensen;Pengana Capital;Analyst, [45]

--------------------------------------------------------------------------------

Sorry, you've got Mark Christensen from Pengana Capital. Can I just ask a question on the working capital movement? Looking at the balances, we can see inventories have come down, as you flagged. Trade and other receivables seemed to be broadly flat. But the big movement looks like it's -- in the trade and other payables line, it looks like there's been an outflow there of around sort of $15-or-so million. Is there anything about that trade payables line that we need to know? Did you guys have to cut a number of checks late in the period? Or just wondering, I know you're outside of seasonal movements in working capital, but as I said, it seems to be playing out in the trade and other payables line. I'm just wondering if you could give any comment there.

--------------------------------------------------------------------------------

Darren Dunkley, IVE Group Limited - CFO [46]

--------------------------------------------------------------------------------

Yes. Look, there's nothing abnormal in those numbers from a payables perspective and a timing. I would need to just go back and have a look at what we had there as payables at the end of June just to confirm that, Mark. But it's -- there's nothing abnormal or unseasonal within those numbers. I don't know if there's any accrued CapExes or whatever at the time, but I could come back to you on that, if you like.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

(Operator Instructions) There are no further questions at this time. I'll now hand back to Mr. Selig for closing remarks.

--------------------------------------------------------------------------------

Geoff Bruce Selig, IVE Group Limited - Executive Chairman [48]

--------------------------------------------------------------------------------

Thank you. And on behalf of Matt, Darren and myself, thank you for making the time to dial in this morning. And hopefully, look forward seeing those that are available and have an interest in our site visit and investor sessions in Sydney on the 17th of March or Melbourne on the 19th of March. Thanks, again. Good morning.

--------------------------------------------------------------------------------

Matthew Aitken, IVE Group Limited - CEO [49]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Darren Dunkley, IVE Group Limited - CFO [50]

--------------------------------------------------------------------------------

Thank you.